GSK vaccine weakness drives stock lower despite earnings beat

GSK, Britain's second-largest pharmaceutical company, reported third-quarter financial results on Wednesday that exceeded analyst forecasts, yet its shares declined as investors focused on slowing sales in its vaccine division.

The company posted a 19% drop in pre-tax profit, landing at 1.9 billion pounds for the July to September period. This decrease was largely driven by 318 million pounds in restructuring charges, with additional costs expected in the future. Despite the lower bottom line, core operating profit increased by 5% and core earnings per share rose by 1%, both metrics outperforming market expectations.

Total turnover for the quarter reached 8.9 billion pounds, a 5% year-on-year increase. This growth was fueled by strong performance in GSK's HIV, cancer, and lupus medicine portfolios. In contrast, vaccine sales fell by 2% to 2.6 billion pounds. The shingles vaccine Shingrix saw a 5% decline, while the RSV vaccine Arexvy dropped by 24% compared to the previous year. Meningitis vaccine sales rose by 12%, but sales of the newly launched asthma drug Exdensur also underperformed.

Luke Miels, who assumed the role of chief executive from Emma Walmsley in January, addressed the dip in Arexvy sales during the earnings call. "When we look at our market share versus Pfizer, we still have leadership there," Miels said. He noted that the company is receiving strong orders outside the United States and needs a few more months to see the full picture. Since taking over, Miels has overseen several acquisitions, including a 7.9 billion pound purchase of a US cancer specialist, and launched a cost-saving program in July to accelerate drug development.

Market sentiment was also influenced by the impending loss of patent protection for dolutegravir, a blockbuster HIV drug, toward the end of the decade. This event will allow competitors to release cheaper generic versions. GSK has set a target of more than 40 billion pounds in annual revenue by 2031 as it works to rebuild its cancer business.

Miels stated that the company is slightly ahead of its three-year plan to save 1.9 billion pounds annually by simplifying operations and redirecting funds to research and development. The restructuring will cost 2.4 billion pounds, with most of the expenditure occurring this year and next. He indicated that the impact on the UK would be relatively limited, with support roles in human resources and procurement affected at the London headquarters and hubs in Poland and India. "You never want headquarters to be too big; I want people on the bench in the lab," Miels said.

The company is also reorganizing its vaccine operations in Belgium, where increased use of digital tools and automation is expected to result in approximately 1,200 job losses. Belgium will continue to produce the bulk of GSK's vaccines. The company employed nearly 67,000 people worldwide at the end of last year.

GSK maintained its annual forecasts, with research and development spending expected to grow faster than sales. The company plans to begin 22 late-stage studies of new medicines by the end of the year. Miels described Shingrix as having "potential to grow next year" and called it "a remarkable product." Two major studies are currently examining whether Shingrix reduces the risk of dementia and major cardiovascular events, with initial data expected in 2029 and 2027 respectively. Both studies could yield transformative results, according to the chief executive. High street chemists in Britain have already reported higher demand for the shingles vaccine following studies linking it to a lower risk of dementia. "We've got a lot of studies that show a correlation. We're trying to demonstrate causation," Miels said.